Re: Building Financial Plans

From: Baker, Todd <>
Date: Thu 6 Apr 2000 14:20:41 -0400

> I am currently putting together a
> financial plan and have NO idea how
> to project potential revenue.

Once you have projected the potential traffic, the rest
is a more of a math problem than anything else. You
should have already looked at competitive sites and
determined the CPM's they are commanding. Once you
have determined a realistic CPM for your type of site
than multiply by the number of visitors. Multiply that
by the average number of pages that you expect each
visitor to visit. Multiply that by the number of ad
units per page. Multiply that number by the amount of
inventory that you think you will sell (it will not be
100%- I would use 25-30% the first year or two). There
is your revenue number for ad banners. The exercise is
similar for all other types of revenue. In your case
assume 5,000,000 people come to your site in a month
(assume that includes all repeat traffic). For the
sake of simplicity, assume they each looked at one page
and there is one ad on that page. If you use a $50.00
CPM you get 5,000,000 x $.05 or $250,000/month in
advertising revenue, if you sell every impression.
Initially you will more likely sell a fraction of that,
so if you use $250,000 x 25% sold you get $62,500 per
month. This is the best way to get ballpark
projections without a track record.

The key here is that the model is ONLY AS GOOD AS YOUR
ASSUMPTIONS. You can't be too conservative in
projecting advertising sales. You need to look at your
traffic projections- will you go from 0 to 5,000,000 in
one month? Not likely. You need to look at the 1,000
of advertisers who will want to reach your audience-
how many do you see advertising currently? What other
outlets do they have? You need to think about your
inventory- will some be less attractive to advertisers,
making it harder to sell? You need to think about who
is selling the site- do you have a staff in place?
Will you need to recruit? If so, it will take 3-6
months from the time they start to get fully going. My
experience is that a rep has a hard time managing more
than 200-250 prospects effectively- can you staff up
adequately? If you have a rep firm (24/7, etc) selling
than you need to figure a greatly reduced CPM.

An important point when doing these projections is to
not kid yourself and to change the variables and run
the projections multiple times. Do a worst case, best
case and best guess and see where it takes you. And
you should have someone with some experience in this
type of work look it over.

Todd Baker
VP, E-Development
Cahners Business Information
973-292-5100 x230

Received on Thu Apr 06 2000 - 13:20:41 CDT


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